High Court lifts ban on liquor sales in Bihar, but policy uncertainty hangover still persists

In a setback to the Bihar government, the Patna High Court Friday quashed the government notification completely banning liquor in the state, saying it is ultra vires of the Constitution. However, the ruling could come as a huge sigh of relief for the liquor companies, which have huge business interest in the state. [caption id=“attachment_265908” align=“alignleft” width=“380”] Reuters[/caption] A division bench of the court comprising Chief Justice Iqbal Ahmed Ansari and Justice Navaniti Prasad Singh quashed the 5 April notification of the state government to stop consumption and sale of alcohol in the state. The 5 April notification is ultra vires to the Constitution, hence not enforceable, the court said in its verdict. The same bench had on 20 May reserved its order on a batch of writ petitions filed by Liquor Trade Association and many individuals challenging the liquor law in Bihar brought by Nitish Kumar government with stringent penal provisions. The state of Bihar has a sizeable number of distillery units attracting both Indian and foreign liquor companies. It has 74 breweries and plants which are operated by several big spirits companies such as Diageo Plc of the UK, United Breweries, Molson Coors and Pernod Ricard that supply to the state and other adjacent markets. The Nitish Kumar-led Grand Secular Alliance government had first banned the manufacture, trade, sale, consumption of country-made liquor since April 1, but later imposed a blanket ban on all types of liquor including foreign liquor in the state. Following the state government’s decision to implement ban on liquor sales, spirit companies were expecting a 5-20 percent decline in sales in the market, a Mint report  said in March. According to brokerage Edelweiss Securities report in November, tax revenue from liquor sales in Bihar for FY15 stood at Rs 3,400 crore. “Bihar contributes in low single digits to IMFL or Indian Made Foreign Liquor sales. Per capita consumption of IMFL in Bihar is likely to be much lower than the national average, given lower per capita income,” the Mint report said citing Edelweiss report. Recently, the World Economic Forum’s Global Competitiveness Index (GCI) ranked India at 39th position, moving ahead from last year’s 55th position. A Firstpost report earlier this week said the GCI ranking is the result of a mix of factors including cheaper crude oil prices (reflected in improved macroeconomic fundamentals), a slew of reform initiatives initiated by the Modi-government to unclog the system, efforts to bring in investments and reforms in the financial sector. However, foreign investors have always been sceptical about the Indian government’s business policies over the years, forcing them to exercise caution on several occasions over their investment plans. “India is the most difficult market in the world but you can’t do stuff like that,” the Economic Times report said quoting Carlsberg India Chief Executive Officer Michael Jensen. In this interview in August, Jensen said that Bihar Chief Minister Nitish Kumar had convinced him three year ago to invest in the state, which prompted him to spend a $25 million plant in 2014. However, after being re-elected as chief minister of the state, Kumar decided to impose a complete ban on liquor sales, which has hurt its investment, the ET report said. Despite the High Court ruling today, the Bihar government in all probability would soon approach the Supreme Court to keep the ban on liquor in the state intact. Till that time, liquor companies will continue to remain in the state of uncertainty. With PTI inputs